Importance of Supply Chain Management

Importance of Supply Chain Management

Right from the procurement of raw materials to the delivery of finished products, all the activities that are involved in the process is said to be supply chain. These activities include procurement, production, distribution, sales etc. The process of managing all these activities is known as supply chain management.

Supply chain management system involvesĀ  decision making at various levels such as procurement, logistics, production, forecasting the demand etc. to ensure timely delivery of finished product and reducing the cost. The decision you take may break or make your company.

Let us see the following case:

A famous electronic device manufacturing company launched an innovative product into the market, but decided not to have a buffer stock before launching. This sort of a decision was taken because it was difficult to estimate the demand for a new innovative product. After the launch the demand was high, but few days later the demand fell. The company haled its vendors to increase the production and then to reduce it. After few weeks demand again rose, the company again asked its manufacturing vendors to boost the production. After a few days the supply of its products fell. [Harvard business Review, The Triple-A Supply Chain, by Hau L. Lee]

What happened here was when the vendors were pressurized to increase and decrease the production, they had no time to fix the bugs in the manufacturing process. For the second time when they were asked to increase the production, defects rose to unacceptable levels. Suppliers had to stop the production to fix those issues. Thus even though the demand was high, the supply has come to halt. Now the product is nowhere in the market.

This case clearly tells us how important it is to know how supply chain works and take the decisions accordingly to meet the customer demand. The case also tells how crucial it is for organizations to master the good practices of supply chain management.

This is the first post in a series of “Supply Chain Basics training to Your Employees is it Necessary?” and in the next I will address the “Effect of Globalization on Supply Chain”.

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